Although airlines are typically multi-billion dollar companies, their financial results are remarkably volatile. The major airlines typically fly thousands of flights each day, serving hundreds of thousands of customers. Nonetheless, the difference between profit and loss for a given airline, when viewed on a per-flight basis, can be the result of the smallest of differences. Further, the impact of a small per-flight difference is magnified by the high profit margin derived from each incremental dollar of value. For example, if an airline flies 5,000 flights a day, and each flight generated just $200.00 more in revenue, which is approximately equal to the revenue generated from just one leisure passenger, the resulting revenue would be $1,000,000.00 a day, almost all of which would be net profit.
Generally, when a flight is first added to an airline's schedule, the airline's revenue management system attempts to maximize revenue for the flight by establishing several fare classes and then allocating the number of seats and fare assigned to each fare class, based on forecasted demand. The revenue management system will thereafter continue to monitor the actual demand within each fare class relative to forecasted demand, to dynamically reevaluate the inventory allocation and pricing of each fare class for a given flight. In this manner, the airlines attempt to fly each aircraft as full as possible without allowing earlier-booking discount-fare passengers to displace later-booking full-fare passengers. Invariably, however, forecasting errors and other factors lead to excess capacity on most flights.
Typically, the difference in published fares between a coach-class ticket and a premium-class ticket for the same flight can be quite substantial. This is especially true when the cost of a premium-class ticket is compared to the cost of discounted leisure tickets. Although many passengers would pay a one hundred percent (100%) surcharge for a premium-class seat, most passengers would not pay a three hundred percent (300%) surcharge for such a seat. Thus, on a given flight, there are a number of passengers who are willing to pay a premium, albeit generally discounted from the published fare, for an upgraded seat.
Airlines recognize that there is a large source of incremental revenue that may be obtained from existing passengers willing to purchase upgraded tickets for available premium-class seats at a favorable price. There is currently no effective way, however, for an airline to receive an offer from a customer for an upgraded seat or other premium service at a particular price set by the customer, below the airline's published fare. Thus, due primarily to operational concerns, airlines are not maximizing their at-the-gate revenue opportunities for highly valued perishable services, such as available premium seats. Specifically, the airlines want to keep the gate area for boarding flights as simple and fluid as possible. Thus, airlines are unwilling to place complex or judgment-based systems at the gate, which can delay flights, frustrate passengers and increase anxiety of operating personnel who are already under significant time pressure to get the flight boarded and pushed back from the gate.
In addition, there is currently no effective way for the airline to be confident that if the airline accepts the customer's offer, the customer will book the upgraded ticket without using the information to ascertain the airline's underlying level of price flexibility, which, if known to an airline's competitors or customers, could dramatically impact the airline's overall revenue structure. Thus, airlines typically provide upgraded seats to preferred customers, such as frequent flyers, for free or in exchange for upgrade coupons purchased by such customers in advance, or allow available premium-class seats to fly empty.
Several airlines utilize online systems to auction airline tickets. Cathay Pacific, for example, provides the Cyber Traveler Auction, which is a silent auction where the highest bidder wins. The Cyber Traveler Auction specifies the number and class of seats being auctioned at a given time, and indicates the corresponding origin and destination cities, and acceptable travel periods or blackout dates and days, as well as bid information, such as minimum and maximum bids, and acceptable bid increments. The number of bids received per class per day are displayed, as well as other bid statistics, but the individual bid amounts are not made available to other bidders. While the Cyber Traveler Auction provides a system for accepting offers for assigned seating, the offers are for an initial reserved seat, and do not permit the airline to obtain incremental revenue from existing confirmed passengers by receiving offers for upgraded services, such as a premium-class seat.
As apparent from the above-described deficiencies with conventional systems for processing reservations for a selected category of assigned services, such as seating on an aircraft, a need exists for a system which permits an individual having a reservation to place a binding offer for an upgraded service or upgrade offer item, should the item become available. A further need exists for a system that permits airlines to gain incremental revenue from the sale of seat upgrades on flights having excess inventory at a price that is set by the customer and agreed to by the seller. A further need exists for a buyer-driven system that permits a seller to sell upgraded services to individuals having a reservation at a price set by the customer, typically below the seller's published price. Yet another need exists for a system that permits sellers to stimulate sales of excess upgraded inventory, without compromising the seller's published fare structure. Another need exists for a system that permits sellers to capture and process consumer demand for each selling price of a given upgrade item, such as a given fare class on each airline flight.